As the Wall Street boom cools, bank executives are beginning to talk about loans

As the Wall Street boom cools, bank executives are beginning to talk about loans

Top U.S. bank executives are taking turns tamping down assumptions for Wall Street benefits this year, while giving shareholders some reason to stick close by: Lending is set to develop. Exchanging has cooled after a surge set by the pandemic, and expenses to compensate rainmakers are climbing, leaders of JPMorgan Chase & Co. and Citigroup Inc. told analysts and investors on Friday. Be that as it may, the economy is solid, and increasing interest rates will help burnish returns on advances, they and their counterparts atop Wells Fargo & Co. said.

U.S. banks are under increasing pressure to show how they will grow going forward after investors made clear they were displeased with fourth-quarter results. Both Citigroup and JPMorgan fell, with JPMorgan tumbling as much as 6.4%, its steepest decline since June 2020. By midday, only Wells Fargo had clawed back initial losses to trade up about 2.6%.

“We have huge firepower to grow, to expand, to make loans, to extend duration,” JPMorgan Chief Executive Officer Jamie Dimon said in a conference call. He remained optimistic on U.S. economic growth, he said.

The pain points were many. They included steeper-than-expected declines in trading revenue, a business Citigroup Chief Financial Officer Mark Mason predicted would continue “to settle down” as calmer markets erase 2020’s pandemic-induced volatility. The hotly-anticipated borrowing rebound also didn’t materialize, with all three banks posting at best tepid growth or at worst declines in consumer loans, as government stimulus measures kept borrowing at bay.

Topping it off were expenses, as inflation drove up wages and banks faced other costs. They climbed 11% at JPMorgan which also forecast an 8.6% increase to $77 billion for this year. Citing inflation and investments, the bank’s CFO Jeremy Barnum said it was in for a “couple of years of sub-target returns.”

“On the corporate side, we’ve not yet seen growth play out,” Citigroup’s Mason said. “And again, our clients have very, very strong balance sheets. There’s a lot of liquidity in the market.” Wells Fargo’s CFO Mike Santomassimo said higher card spending had not translated into loan growth.

But despite the dreary results, executives remained optimistic that borrowing will bounce bank in 2022. The bread-and-butter part of their business — lending — stands to benefit from Federal Reserve interest rate hikes and the run-off of stimulus measures.

Wells Fargo said it expected net interest income, a key metric for the lender that tracks what it makes in loans minus what it pays to depositors, could increase about 8% in 2022. JPMorgan, the biggest U.S. bank, also said it expects NII excluding the markets business to be $50 billion for the full year, higher than in 2021.

Barnum said the bank has begun seeing a pickup in loan growth, after reporting 1% drops in both consumer and business loans from a year earlier. The consumer is in “good shape,” Dimon said. “In spite of omicron, in spite of supply chains, 2021 was one of the best growth years ever,” he said.

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